Exam 8: Portfolio Selection for All Investors

What variable is manipulated to determine efficient portfolios, and why are the other variables not changed at will?

According to Markowitz, rational investors will seek efficient portfolios because these portfolios are optimal based on:

Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by

Which of the following statements regarding indifference curves is not true?

When using the Markowitz model, aggressive investors would select portfolios on the left end of the efficient frontier.

The benefits of international diversification have ________since 1995.

The Markowitz Model does not depend on the assumption of normally distributed security returns.

Asset allocation accounts for less than 50 percent of the variance in quarterly returns for a typical pension fund.

Assume ABC are all positively correlated. A fourth stock is being considered for addition to the portfolio, either stock D or stock E. Both D and E have expected returns of 12%. If stock D is positively correlated with ABC and E is negatively correlated with ABC, which stock should be added to the portfolio? Why?

Under the Multi-Index Model, the industry relationship to stock prices would be assessed by the:

Academic research shows asset allocation decisions explain approximately 90% of the variation in returns in a portfolio, whereas individual security analysis, including "stock picking," explains only about 10%.

An international index commonly used as a proxy for international equities that correlates approximately 80 percent with the S&P 500:

Indifference curves reflect -------------- while the efficient set of portfolios represent ---------------.

The optimal portfolio for a risk-averse investor:

Which of the following statements is true regarding TIPS?

Given the following information, calculate the expected return of Portfolio ABC. Expected return of stock A = 10%, Expected return of stock B = 15%, Expected return of stock C = 6%. 40 percent of the portfolio is invested in A, 40 percent is invested in B and 20 percent is invested in C.

The Sharpe model was found to outperform the Markowitz model in longer time periods.

An indifference curve shows:

The single-index model implies stocks covary only because of their common:

The single index model divides a security's return into _______ and ________ parts.